The Consumer Financial Protection Bureau’s first auto finance-related enforcement action zeroed in on vendor-management procedures. The takeaway for lenders: Beef up oversight of service-provider partners or risk becoming the focus of CFPB’s next enforcement action.
Michelle Shaffer, chief executive of CARMA LLC, a compliance consultancy for the debt-collection industry, offered these six strategies for developing a solid vendor-management program:
Know your vendors. The most important thing auto lenders can do to prepare for a CFPB exam or investigation is to know its vendors and all the services they provide for the company. In June, U.S. Bank was ordered to repay $6.5 million to service members because one of its vendors had illegal marketed vehicle service contracts, among other violations.
Review all documents. Make sure to review any documents providers use to interact with your consumers, Shaffer said. U.S. Bank should have reviewed the documents its vendor, Dealers’ Financial Services, was using to win customers, “but they didn’t,” she said.
Monitor customer interactions. Be aware of the types of interactions vendors are having with your consumers. “If they are mailing them letters, signing agreements with them, and charging them fees, you better understand what those fees are they are charring consumers,” Shaffer said.
Use clear language. Pay attention to language detailing marketing efforts, contract issues, and fee explanations, and determine whether it might be misunderstood by consumers. Ultimately, the standard should be to gear communications to the least educated consumer. “It has to all be plain English,” she said.
Set an appropriate cost structure. Though Shaffer declined to offer a baseline for the price tag required to implement a vendor-compliance program, she said the cost structure should mirror the size and complexity of the company. Cost will also depend on location and the level of expertise a company decides to employ. “There’s just no hard data out there,” she said.
Create a timeline for implementation. While some smaller organizations may take anywhere from one to three months to set up a compliance unit, larger firms might need six months to a year to get the appropriate infrastructure in place.